




Variance is a measure of volatility. Variance is calculated as the average squared deviation from the mean. The Capital Asset Pricing Model uses variance as a measure of investment risk. Investments with higher volatility (variance) have greater risk. CAPM postulates that the risk (variance) of an investment portfolio consists of both market risk and specific risks associated with each asset. While market risk is unavoidable, portfolio variance can be minimized and the risk associated with specific assets reduced if the investor owns a diversified mix of assets. Most financial advisors seek to minimize portfolio variance for their clients by recommending that they invest in a diversified portfolio which includes both large and small market capitalization domestic stocks, as well as bonds, international equities and real estate.
Rate this variance definition...




Where is the market headed? The answer may surprise you. Find out with the exclusive & Barron's recommended charts of Chart of the Day. 

Popular Terms: option premium, command economy, retained earnings, deferred revenue, risk management, 401a, dividends payable, 1031 exchange, Zero Cost Collar, annual return, covered put, per diem, 144a, APR, liquidity ratio, FTSE, current ratio, average price per share, reverse mortgage, real GDP, limit order, stock market close, stock split, whollyowned subsidiary, deferred tax, in escrow, labor relations, required rate of return, debt service coverage, FICO score, implied volatility, EBITDA, quality assurance, cancelled check, minority interest, margin rate, balance sheet, exdividend, class C shares, irrevocable trust, open position, 1035 exchange, phantom income, exdividend date, inflation, diluted share, VIX, Key Rate Duration, LIBOR


 